I Just Switched! Best Stocks & Shares ISA For ETFs For 2022-23

The new ISA tax started on the 6th April, which means it’s decision time: Do you continue making deposits into your existing ISA, or do you switch to something better?

With Cash ISAs, all that matters is the interest rate, but with Stocks & Shares ISAs, you need to try and find the one with the lowest fees, good customer service, the best functionality, and the best investment range; or as many of these boxes as you can tick. The platform also needs to offer the specific investments that you want in your portfolio.

I’ve just transferred my main ISA from my old investment platform, Trading 212, to InvestEngine, who will look after my stock market wealth in the 2022-23 tax year. I’ve been blown away by this innovative new platform for ETF investors and am putting my money where my mouth is. But is it the best platform for your Stocks and Shares ISA?

In this video we’ll show you how important it is to have a good ISA, tell you how to transfer your old ISAs to a new provider, we’ll have a look at the portfolio I’ve built in InvestEngine, and we’ll go into why I’m so excited about this new home for my investments.

InvestEngine are offering a £25 investment bonus to all new customers who open any account type with them via the link on the Money Unshackled Offers Page. Capital At Risk, T&Cs Apply.

Watch The Video > > >

Written by Ben


Featured image credit: soul_studio/Shutterstock.com

Also check out the MoneyUnshackled YouTube channel, with new videos released every Wednesday and Saturday:

1.3 Million Noobs! What New Investors Need To Know

Recently I received an email from Freetrade declaring they have had 1.3 million people sign up to their platform. Meanwhile, Trading 212 have 1.5 million clients, and bear in mind that they’ve been closed to new investors for over a year, so how high would their client base have gone? The point is, new investors are flooding to these kind of low-cost investment apps and there are now countless investing platforms available.

33% of Brits own shares and 67% of the population say they plan to buy stocks and shares in the future, according to finder.com. Their research also found that over the last 5 years, the volume of searches on Google in the UK for the term ‘buy shares’ has risen 165%.

We think this is fantastic news as more and more people are putting their money to work but it also means there is a tidal wave of noobs who don’t know what they’re doing.

In a survey of Freetrade’s users, they found that 59% were first-time investors and just 5.4% consider themselves highly experienced investors. For me, this really became apparent a few months back when both my sister and her husband out of nowhere were asking me what shares they should buy, having shown no interest in investing before. I presume their friends had mentioned a free stock and that was probably enough to tempt them to try investing.

In this post we’re going to dish out some helpful tips for newbie investors and answer many of the burning questions that new investors have or should have, so you get your investing off on the right track. We’ll cover: how much you should pay to trade; how you are protected; whether you should invest in stocks and crypto; and how long to invest for; and more. Now, let’s check it out!

Alternatively Watch The YouTube Video > > >

As a sidenote, check out the Offers page if you want to grab some free stocks from multiple investing apps, as well hundreds of pounds of free cash, and discounts to investment services.

Don’t Pay To Trade Anymore

At the end of the day the fees (and taxes) you pay make a huge difference to the amount of money you make. Investors have a hard enough challenge to pick winning investments without having fees dragging them down.

But the good news is that the days of paying £10 or more every time you want to buy and sell are over – even if some of the heritage platforms don’t know yet. I would love to be a fly on wall in the boardroom of the older platforms as they frantically strategize how they can protect their revenue stream. For years now their business model has always been to rip-off investors for placing trades despite the direct cost of these trades to the platform being negligible.

In Hargreaves Lansdown’s result for 2021, they were enthusiastically announcing they had a record 233,000 net new clients, taking the total to 1.6 million. On the face of it this is impressive but apps like Freetrade and Trading 212 have achieved this in just a few short years.

We’ve been producing videos for 4 years now and one thing we’ve noticed is that new investors are overwhelmingly choosing commission-free apps over their expensive rivals, and who can blame them?

AJ bell have identified the threat as they will launch their own commission-free app sometime this year but at launch this looks to be just a heavily watered-down offering.

Some of the new apps that have sprung up in recent years offering commission-free investing include Freetrade, Trading 212, InvestEngine, Stake, Orca, Revolut, Wombat, Lightyear, and even big names like Vanguard don’t charge to trade. There is plenty of choice, and it seems to be getting better day-by-day.

Interactive Investor, who are the second largest platform by assets under management include free trading credits each month, and it’s surely only a matter of time before they fully commit.

From conversations I’ve had with older investors I gathered that they were less bothered by trading commissions because: (1.) Their trades were so large that the fee was less significant, and (2.) They were used to paying fees having paid them ever since they started investing.

But for younger investors, who want to invest say £2,000 over 20 stocks, that £10 fee per trade would cost them 10% of their portfolio just to buy, which is crazy high!

The slashing of trading fees has mostly been focussed on General and ISA accounts, and we have to admit there is still less choice for commission-free pensions, although this is slowly improving.

Other than the excessive cost, the other big reason to avoid paying trading fees is they negatively influence how you invest. You need to be free to rebalance your portfolio as and when it is needed. Trading fees interfere and affect your investing behaviour.

Between the platforms there is also a race to charge the lowest platform fees. Our favourites all charge zero or near zero fees to hold your investments with them.

As it stands right now, most platforms will compete on price in one specific area such as ISAs but be less competitive with another product such as SIPPs. For this reason, it usually makes sense to have your different accounts across multiple investment platforms, ensuring you’re always paying the lowest fees possible.

How Are Your Investments Protected?

This is a super popular question, and we can tell based on community answers that it’s very misunderstood. Most people focus way too much on the Financial Services Compensation Scheme, which protects up to £85,000. Because this is quite low people wrongly believe that they aren’t protected above this amount and should spread their investments over multiple platforms, but it’s not that straightforward.

Let’s deal with what is hopefully obvious; if you make a bad investment and the share price crashes, you’ll have to take that on the chin and put it down as a lesson learnt. You are not protected against making poor investment decisions.

But how are your investment’s protected against platform failure? The first line of defence is the segregation of client assets. Your platform is not permitted to use your capital in running their business, so they won’t be selling your shares to pay their salaries.

So should the platform collapse, your assets should in theory be safe and transferred to another platform. The cost of the administration and legalities of this may have to come from the client assets but this is when the Financial Services Compensation Scheme’s £85,000 comes into play as a last resort. Therefore, although the FSCS is just £85k, you are in effect protected by much more than this!

Another thing that could happen – no matter how unlikely – is a provider of the ETFs and funds you are invested in becoming insolvent. For example, imagine you hold an iShares ETF on Freetrade, and iShares goes bust.

Most ETFs are domiciled outside the UK, typically in Ireland and Luxembourg. If the manager of an overseas-based ETF becomes insolvent, there may be a compensation scheme in that jurisdiction, but it’s unlikely to be covered by the FSCS.

The underlying stocks within the fund do not legally belong to the provider (such as iShares and Vanguard), so if they get into financial difficulty, your investments would be protected from its creditors. And in any case, these fund providers are probably too big to fail. They each manage trillions of dollars’ worth of assets.

The likely worst thing that will happen from any firm failure is your money getting tied up for a period of time. If you wanted to err on the side of caution you might want to invest in funds from a range of providers (such as iShares, Vanguard, and Invesco) and invest across a couple of platforms. We do this by ensuring our pension is not with the same provider as our ISAs.

It’s Harder Than You Think. It’s Easier Than You Think

That might sound like a contradiction, but it’s aimed at 2 different types of people. First you have new investors who think they are the bee’s knees, when in reality they are just taking wild punts. And in a bull market, which is when the market is going up, their recklessness is often forgiven.

Most of these investors couldn’t even tell you the difference between a balance sheet and an income statement but for some deluded reason they believe they have a knack for picking winning stocks… they don’t! Ben and I (MU cofounders) both have degrees and professional qualifications in accountancy, not to mention years of experience, but we still sometimes struggle with the overcomplicated and tedious accounts published by most companies.

Then you have scaredy cats who are the polar opposite. They are totally overwhelmed by investing and if they do overcome this fear, they will only invest through a managed service like a robo advisor because they wrongly believe you need to be some sort of investing professional to invest properly. Robo-Advisors are typically unnecessarily expensive but at least they get them investing, so are better than nothing.

The best way to invest in our view is somewhere in between these extremes. Hand picking your own Exchange Traded Funds which track broad indexes should produce better returns for each type of investor and is super easy. We even share our own portfolios on this website – what we call the Money Unshackled Ultimate Portfolio, so you can just copy this or at least use it as a starting block.

Limit Stock Picking And Crypto To The Bare Minimum

Picking stocks that outperform the market is insanely difficult and usually you will do worse than had you just dumped your money in an index tracker. There are tonnes of studies proving that even professionals underperform.

However, we get it; picking stocks is way more fun, so what we suggest is you put the majority of your money (say 85% or 90%) in boring index trackers, and have a little fun with the rest. We don’t mean toss it up the wall by any means, but feel free to have a go.

One problem with stock picking is you have to be right twice. You need to know when to buy and when to sell. The first one isn’t easy but knowing when to sell is super tough. Where most beginners go wrong is failing to understand that a good company does not mean a good investment. If the rest of world already knows how good the company is, then it will be factored into the share price. An industry like Veganism may seem like it’s taking off, but buying shares in, say, Beyond Meat, won’t necessarily be a good investment just because a lot of people want to eat plant burgers.

Stockopedia is an incredible resource for analysing and screening stocks, and we can’t recommend it highly enough. For most beginners it’s probably too expensive but you do get a free 14-day trial with our link, and a 25% discount if you choose to keep using it. For stock investors definitely take a look at Stockopedia.

As for crypto, that Freetrade survey we mentioned earlier found that 45% of their customers also invest in crypto. If this was just a little fun money, then we have no real issue with this, but we hope people aren’t investing their life savings into it.

With the stock market it’s usually a select few companies that drive overall market growth. With crypto the success of the asset class will be determined by an even narrower set of assets. There are 19,000 different coins according to Coinmarketcap.com, with the majority of crypto’s market cap coming from just a handful of coins – primarily Bitcoin and Ethereum. What are the chances of you picking a winning crypto from that large pool? Most of them will go to zero.

Also, we don’t think you should invest in what you don’t understand. Sure, you probably know the basics like you store it in a digital wallet, and you can buy it from Coinbase or other exchanges. But do you understand what applications crypto has and the value of them? Or why certain coins are better than others? We’re not convinced it will even become widely accepted for payment. You can’t spend Euros in a British Tesco, so what are the chances of being able to buy your milk with Bitcoin?

Personally, we don’t speculate on currency movements such as the British pound vs the US dollar. In our eyes, crypto is just another currency… albeit more complicated. Most of our money goes into productive assets. With stocks, it doesn’t matter in the short term if other investors don’t see your point of view. A good stock will generate massive profits (and dividends) regardless of what is happening to the share price. With crypto it’s only worth what others are prepared to pay.

Investing Is A Long-Term Game

Investors now hold onto their shares just 0.8 years on average before selling them. In 1980, the average was 9.7 years, representing a decline of almost 92%, according to finder.com.

This tells us that most investors are effectively gambling, rather than investing, at least when it comes to stocks. The problem with investing for short periods is that the market is highly volatile in the short-term, by which we mean a few years. In the short-term you could quite easily lose almost all your money even if you invested in the best stocks.

Amazon stock price history

Between 1999 and 2001 Amazon’s share price plummeted by around 90%. Today, that catastrophe isn’t even a noticeable blip on their price chart. Anybody who sold will be kicking themselves as today it’s risen by about 320x.

Benjamin Graham, who is widely known as the “father of value investing” and teacher of Warren Buffett said, “In the short run, the market is a voting machine but in the long run, it is a weighing machine.”

What tips can you share for noob investors? Join the conversation in the comments below.

Written by Andy

Also check out the MoneyUnshackled YouTube channel, with new videos released every Wednesday and Saturday:

High Interest: 7 Best Ways To Stash Your Cash Savings

Since 2008 the interest you earned on your cash savings had become a joke, getting to the point where you had no choice but to invest it or otherwise, you’d get no return on your money. The Bank of England had slashed the base rate in response to the Great Recession, and for most of the time since it was just 0.5% which was about the best interest rate that you could expect to earn on your savings. During Covid it was slashed even further taking it just shy of 0%.

But times are changing, and interest rates are now rising, which wrongly might put a smile on the faces of some people with savings. They don’t understand how much worse off they’ll really be when rates rise.

The Bank of England meets roughly once every six weeks to vote on the base rate. They’ve raised it in the last 4 consecutive meetings, and it now sits at 1% – a 13-year high! It’s also expected to continue rising because as you will know inflation is soaring. According to Sky News, markets expect the interest rate to hit 1.25% later this year, going up to 1.5% by mid-2023 – and there’s a chance it could go even higher.

In this post we’re going to be looking at some of the best places to stash your cash in this age of high inflation and rising interest rates.  We’ll discuss some of the pros and cons of each of these, look at when you should hold cash and help you to decide on whether you should be doing more with it such as paying down debts or investing. Let’s check it out…

Alternatively Watch The YouTube Video > > >

Rising Interest Rates Is Bad News

When interest rates were slashed savers were effectively being punished for stockpiling cash. The intention of low interest rates is to force savers to spend their money and consequently boost the economy.

Although interest rates were low over the last decade, so was inflation, so the buying power of your money was only being eroded at a snail’s pace. For example, if the interest you earned was 0.5% and inflation was 2%, then your real return is minus 1.5%.

This is bad but it still allows you to hold cash for years without losing significant buying power. However, this negative real return completely destroyed cash as a means to grow wealth. Unfortunately, although this is a basic concept most of the British public don’t understand this and still continue to save, rather than invest. All they see is the headline interest rate and their bank depositing interest into their accounts monthly.

With rising interest rates you’d be forgiven for thinking this was good news for savers, but the problem is that real interest rates (that’s after deducting inflation) are getting worse, far worse! Inflation is predicted to peak above 10% in the fourth quarter of 2022 meaning you’ll be earning a negative real return of around 8.5%, assuming the interest you earn is 1.5%.

In a single year this is a terrible blow to saver’s cash but if this continues for longer, people’s cash will be wiped out in real terms. It’s now more important than ever to ask the question, should you be doing more with what savings you have? This could be paying down debts or investing in something that gives your money a fighting chance.

Another and probably more obvious reason why rising interest rates is bad is that it means the cost of borrowing goes up. We’re betting the majority of the people you know have some form of debt – and probably a lot of it.

A small hike in your mortgage rate would add hundreds of pounds to your monthly payment. For example, a mortgage of £300k, over 25 years, costing 2% has a monthly payment of £1,272. If that interest rises to 4% the monthly payment increases by more than £300 a month (to £1,583)!

Best (& Worst) Ways To Stash Your Cash Savings

The following list is not ranked best to worst because the best place to stash your cash depends on what you’re holding cash for.

#1 – Easy Access Savings and Cash ISAs

Since the Personal Savings Allowance was introduced there’s been little difference between a normal savings account and a Cash ISA, hence why we’ve grouped them together. Basic rate taxpayers can earn £1,000 interest each year before paying tax and higher earners can earn £500. So, with interest rates still fairly low, the decision will likely boil down to whichever pays the highest interest.

At time of writing the best rates are from Chase Bank which pays 1.5% on their easy access savings account and Marcus by Goldman Sachs pays 1% on its Cash ISA. There’s no point mentioning any more because this info will probably be out of date within weeks, especially if the Bank of England base rate continues to climb. See here for best rates.

The important part here is that you can access your money whenever you need, which is required if it’s an emergency fund. On that note, we would avoid any account that stipulates rules such as limiting the number of withdrawals or forces you to give notice to withdraw.

#2 – Fixed Savings Accounts and Cash ISAs

With fixed savings you can’t withdraw your money until the end of the term, which will make them useless for most people. The main reason to have cash in the first place is for emergencies but it’s no good if it’s locked away.

1 or 2-year fixes might be useful for a short-term savings goal, and these tend to have relatively impressive headline grabbing interest rates. There’s a bunch currently paying around 2.5%.

But some fixed accounts lock your money away for 5-years, and barely give any additional interest despite the lack of access. With such a long time horizon, we think investing would be a better use of your cash.

See here for best rates.

#3 – Premium Bonds

Premium Bonds are the nation’s favourite savings product with a whopping £117 billion saved in them. Until recently Premium Bonds were paying the best interest rate at 1% overall but most people would earn less and sometimes nothing at all.

Premium Bonds are essentially a giant lottery and the more bonds you own the higher your chances of winning. Money Saving Expert crunched the numbers and found that someone with average luck and who had £10,000 worth of bonds would earn 0.75%.

With interest rates on the rise across the board and other savings products now offering more, the reasons to buy Premium Bonds are getting smaller. But all that could change if they raise the prize pool, so let’s see what happens.

#4 – Cash Lifetime ISA

Cash Lifetime ISAs are the go-to savings product for first-time homebuyers. The interest rates available are not great but you get that 25% government boost. But whatever you do, don’t use a Cash Lifetime ISA for your retirement savings. As the decades go by, due to inflation your retirement money will be worth diddly squat.

See here for best rates.

#5 – Regular Savings Accounts

This type of savings accounts is a joke these days; they used to be far more generous! The banks try and draw you in by offering what seems like a headline grabbing high interest rate (often 3-5%) but attach a load of conditions.

The main drawback is usually a ridiculously low monthly deposit limit in the region of £200. There’s no point earning 3% if it’s on a tiny sum of money. And secondly, you’ll usually only earn interest for 12 months, so by the time you’ve slowly drip-fed a meaningful amount of money in, the offer expires. Regular Savings Accounts are probably not worth your time.

See here for best rates.

#6 – Buy Gold & Silver

Buying power of £100 relative to gold, over time

Government money such as the British pound or the US dollar lose value over time due to inflation. Over the last 50 years the British pound has lost around 93% of its purchasing power according to officialdata.org. £100 in 1972 is worth less than £7 in today’s money.

Saving your money and earning some interest on it will limit the loss of purchasing power slightly but during my adult life I don’t recall any year when interest earned was greater than inflation. Therefore, holding cash is a hidden raid on your wealth. 

One potential way to preserve that value over the long term is by holding gold and silver instead – which is the original money and has a positive record going back thousands of years.

Gold price, over time

This chart shows the price of gold in pounds sterling for about 50 years. Although the growth in value is not a straight line there is huge appreciation over time, which is in stark contrast to the declining value of the pound which the previous chart showed.

By the way, new customers can get some free silver and cash when they open a BullionVault account when they follow the link here. BullionVault is the world’s largest online investment gold service. T&Cs apply.

#7 – Money Market Funds

You’ve probably heard of the term but you probably don’t know too much about what money market funds are. A money market fund is a very low-risk investment that gives you a place to hold rather than grow your savings, while aiming to give you a slightly higher return than cash.

They do this by buying short-term debt from governments, banks and companies with strong balance sheets and high credit ratings. You will earn a small amount of interest, all while the capital value of your money stays stable, in theory.

I personally invest in these types of funds when I have money just sitting idle in my investment account. This is because most investment platforms pay zero interest on your cash balance, and a money market fund is a way of at least earning something on your cash.

I invest in the Xtrackers GBP Overnight Rate Swap ETF (ticker XSTR) but if you’re looking for an open-ended fund, then there’s also the Vanguard Sterling Short-Term Money Market Fund.

How Much Cash Should You Have?

The amount of cash you should have is specific to your unique circumstances but if you’re working in a relatively secure job (if there is such a thing), then a general rule of thumb is that you want 6 months of your normal monthly expenses in accessible cash – this is your emergency fund. And that assumes you have no bad debts.

You might also have some additional cash if you have a short-term savings goal, say you’re getting married next year, or you intend to buy a house in 2 years’ time. You shouldn’t invest for short-term goals because you can’t afford the market crashing when you need the money.

For any long-term savings these should be invested because this is the only way to grow it and at the very least you want to avoid that nasty inflation chopping away at it. If you’ve stopped working due to, say, retirement, then you might want up to 2 years’ worth of cash with the rest invested. This should be enough cash to avoid having to sell investments during a downturn.

You Should Invest Or Pay Down Debts

If you agree with me that holding cash is detrimental to your wealth, you will likely want to invest, or else pay down your debts. It’s scary how many people sit on a big pile of cash and continue to pay interest on their mortgage and other debts. This is the sort of behaviour you can only get away with when interest rates are low, like they have been in recent years.

When interest rates are low, I personally choose to invest spare cash (even going as far as to borrow to invest) but as interest rates creep upwards there becomes a point when the risk overshadows the potential returns.

If the expected market return is 8% and the debt costs 2%, then I aim to profit from the difference. However, say the interest rate you were paying rises to 6%, there is little profit to be made but an awful lot of risk. If interest rates rose over 8%, for me, it would be madness to invest if I had debts.

During much of the 70s and 80s interest rates were in excess of 10%, so this is a perfect example of when I would stop investing, stop hoarding cash, and pay down as much debt as I could.

What Are you doing with your spare cash? Join the conversation in the comments below.

Written by Andy


Featured image credit: ullrich/Shutterstock.com

Also check out the MoneyUnshackled YouTube channel, with new videos released every Wednesday and Saturday:

Has Dave Ramsey Lost The Plot On House Deposits?

House prices continue to soar ever higher. The average property price rose by 10.9% over the year, meaning the average home in the UK cost £277,000, which is £27,000 higher than last year, according to figures from the ONS.

Compounding the problem for wannabe homeowners is rising rents. The Guardian reported that the average advertised rent outside of London is 10.8% higher than a year ago. Property website Rightmove said it was “the most competitive rental market ever recorded.”

This got me thinking – how can anyone afford to buy a house and what is the best way to save for a house deposit? Well, it’s certainly not easy. The average age of a first-time buyer in the UK is 34 years old and this is 6 years older than the average age of a first-time buyer in 2007.

Dave Ramsey is a well-respected and popular finance guru over in the US; some might say he’s the US equivalent of Martin Lewis. In this post we’re going to examine his views on how to save for a house deposit, including how much to put down for a deposit, what to cut from your spending, how to earn more, and where saving for a house fits within his 7 baby steps for mastering money.

Whilst we think Dave Ramsey overall has an excellent message, there are many things we disagree on and much of what he says doesn’t translate over here in the UK, despite legions of UK fans hanging on to his every word. This is going to be an interesting one. Let’s check it out…

One way to earn some easy extra money is through matched betting – a bеtting technique which covers all outcomes and is used to profit from the free bets and incentives offered by bookmakers, and it can make you hundreds of pounds every month. Find out more with our detailed guides, linked here. You’ll need a matched betting subscription, which pays for itself, so grab 50% discount off your first month with our offer.

Alternatively Watch The YouTube Video > > >

The State Of The Housing Market

If you were thinking that everyone else seems to be on the property ladder but you’re not, then know that you’re in good company because the reality is quite different. One in three of the millennial generation, born between the mid-1980s and the mid-1990s, are expected to never own their own home, according to the Guardian.

The FT stated that in early 2021, the average house deposit for a first-time buyer reached almost £68,000, which was around £18,000 more than in 2019. That’s deposit inflation of 36% in just 2 years.

How Much Should You Spend On A House?

Dave says you want a 15-year fixed-rate mortgage where the payments are no more than 25% of your monthly take-home pay. In fact, that 25% should include all your housing costs such as property taxes, which is essentially the US equivalent of our council tax. So as a couple if you earned £4,000 after tax, then your total housing costs would be no more than £1,000 a month.

He goes on to say that “the reason your mortgage payment should never be more than 25% of your monthly take-home pay is because you’ll have plenty of breathing room in your budget to tackle other financial goals—and keeps your house from owning you.”

Straight off the bat we have multiple problems with this. Firstly, we don’t know what the US mortgage market is like, but we checked a big mortgage comparison site in the UK and there seemed to be only one lender offering 15-year fixes, which was way more expensive than a typical 2-year deal. At time of writing a 2-year fix might cost 2% a year, whereas fixing for 15 years would cost around 3.7% a year.

To be fair, although this seems like a huge difference, 3.7% might turn out to be cheap considering the expected direction of interest rates right now, but first-time buyers need every upfront cost saving they can get their hands on.

Plus, we would never encourage anyone to lock themselves into a deal for more than 2 years, let alone 15. The fact is that relationships breakdown often forcing you to sell the house; the person you love right now could be impossible to live with in a few years’ time. The UK divorce rate is estimated at 42% and almost half of these breakups tend to happen in the first decade of marriage, when you’re buying that first house together. Our bet is that the number of breakups outside of marriage is even higher.

The problem is that mortgage fixes always come with horrendous early repayment charges. In this case it would be 5% in the first 5 years. That would be a £15,000 penalty if the mortgage outstanding was £300,000. These might be incurred if you had to sell the property. You can often avoid these if you move the mortgage to another house, but you must stick with the same provider, limiting your options.

Also, Dave is also saying that the mortgage should be paid off in full by the end of this 15-year fix. But let’s not forget to mention that a 15-year mortgage term is ridiculously short for a first-time buyer – almost laughable. Most people in the UK can’t even get on the property ladder with 30-year terms, which have more affordable monthly repayments.

With house prices surging, one of the only levers to pull is to extend the mortgage length in order to reduce monthly payments. It’s a must! In this example (Debt: £250,000, Interest: 3.5%) monthly mortgage repayments would be £665 more based on a 15 vs a 30-year mortgage term (£1,788 vs £1,123).

Another point Dave misses is that even if you want a short mortgage term (some of you will) it’s often better to get the longest mortgage term you can get and make overpayments (make sure you get a mortgage that allows this without penalties).

If you get a short term, you are contractually obliged to make those payments, whereas overpayments are optional.  If you default on your mortgage you run the risk of having your home repossessed. Life will throw a lot of curve balls, so there’s no need to tie your hands for the same end result.

How Big Should Your House Deposit Be?

Dave recommends a 20% deposit as it gets you out of paying for private mortgage insurance. However, as this seems to be a US specific insurance, it doesn’t apply to us in the UK. Nevertheless, he says if you can’t do 20%, that’s okay but don’t go any lower than 10% – otherwise you’ll be stuck paying extra in interest and fees, putting you further in debt for decades!

Our views on mortgage debt, especially cheap mortgage debt differs from what Dave believes. He considers mortgage debt to be a necessary evil, but when interest rates are low, we consider mortgages to be an incredible wealth building tool.

If you can earn 8% in the stock market on average but only pay 2% on your mortgage, then over time your wealth could be hundreds of thousands of pounds higher by choosing to pay as little as you can on the mortgage and investing this instead.

This doesn’t mean put down the lowest deposit possible though. Due to banks giving preferential rates to those with more equity, we previously calculated that the optimal deposit size or house equity was somewhere between 10-25%, and anything over this was wasting an opportunity to invest with dirt cheap money.

It’s important to note that the optimal mortgage deposit size depends on your specific circumstances and prevailing interest rates. If you want the full explanation of how we worked this out so you can calculate it for yourself, we go into some detail in these videos (here and here), so these will be worth watching next.

Because mortgage debt is long-term – it can be up to 40 years – this is enough time for any stock investments to ride out any bad years. Dave Ramsey must believe this to a certain degree because even he recommends paying 15% of your household income into retirement savings before paying down the mortgage early.

How Long Should It Take To Save A Deposit?

Dave says it should take no more than 2 years to save a deposit. Again, this might be reasonable in the US – we don’t know – but in the UK we can’t imagine many people being able to do it in 2 years. As we said earlier, the average age of a first-time buyer in the UK is 34, and we think most people will start actively saving from their mid-twenties. The fact of the matter is you will need tens of thousands of pounds which for most people will take several years.

Where Should You Save The Money For A House Deposit?

Dave’s recommendation is a US specific product called a money market savings account but in the UK that would just be savings account. And we agree. If you can save for the deposit in a few years, then stash the cash in an easy access savings account, Premium Bonds, or a Cash Lifetime ISA if the house price will be below £450,000. You can’t risk losing your home purchase by investing the cash and seeing it fall in value.

We know that inflation is killing that cash while it sits there. But we think this is one occasion where we wouldn’t be happy to wait a decade for the stock market to recover if it halved in value right before we wanted to purchase a home.

The exception might be if, realistically, you know it will take many years to save for. When the dream of buying your own home is looking at least 5 to 10 years away, then you might think about investing in the stock market instead, perhaps with some bonds to reduce portfolio volatility.

Streamline Your Budget

This is Dave’s fancy way of saying, “cut all joy from your life and live like a pauper”. Some ideas from Dave include taking a break from the gym, stop eating out, and stop buying clothes, amongst other things. Apparently, these alone could save you in the region of £450 a month.

Yes, you probably could make some savings, but this sounds like a massive exaggeration for most cash strapped people who are likely already watching what they spend like a hawk.

Some expenses might even help you save money elsewhere; Netflix is cheap and could alleviate boredom, so you don’t go out and spend even more. Same with the gym. If you’re spending 4 days a week working out, at least you’re not going elsewhere and having more money escape from your pocket.

We definitely agree there should be cuts where possible – just remember you might be saving for many years, so make sure you’re still living a life worth living.

Temporarily Pause Your Retirement Savings

In a surprising twist Dave says it’s okay to temporarily pause your retirement savings. Just make sure this is only a one-to-two-year detour, not a five-year pause! This means that Dave Ramsey’s 7 Baby Steps is really more like 8 steps, with saving for a house deposit slotting in as the new number 4.

We would tend to agree with cutting down on the retirement savings if the timeframe was short, except we would always take advantage of any employer matched pension contributions. Most employers will only match 3% to 5% so whatever you save into your employer pension shouldn’t be too much of a drain on your house deposit savings. But as this matched contribution is effectively free money you don’t want to miss out on this.

Boost Your Income

If you’re familiar with Dave Ramsey you’re probably anticipating that he will say, “get a 2nd job, like delivering pizza during the night!”. And Dave does not disappoint.

Never mind that Americans already work on average 47 hours a week, Dave now wants you to take the graveyard shift at Dominoes. Sleeping and some recovery time is obviously seen as a luxury at Ramsey Manor.

Here in the UK maybe there’s a little more scope for some extra work – the average hours worked comes in at 42 hours a week, but unless it’s a hobby you’ve managed to monetise, we wouldn’t want to do this at all. Going gazelle intense as Dave would say might be a short-term solution for someone drowning in debt but it’s a tall order for someone who just wants to own a home.

As for what second job you should take, not to worry, Dave has some suggestions. Apparently, if you like driving, get a second job with Uber. Because as we all know, cruising down a nice open country road is the same as ferrying drunks around in the back of your cab at 2am in the morning.

For those of you who don’t mind working all hours, then don’t let us stop you. We ourselves effectively had a second job while we got the Money Unshackled YouTube channel off the ground, but this was a hobby at the start.

Perhaps a better money-making option is to double down on your existing job. Can you get a payrise or a promotion, or do some paid overtime? At least this way the extra effort will help boost your primary income and your reputation with the boss, which could have longer lasting effects.

Cut The Extras And Save Even More

Dave has already slashed your day-to-day budget but evidently that wasn’t enough. Now, you must skip the summer vacation as well. He might be on to something, but we’d first look to see if you can still go on holiday but find somewhere cheaper. You don’t need to spend several grand going to Disneyland Florida when you can go to Tenerife for a fraction of the price and still have a wicked time.

Dave also says to sell some stuff. I bet most people will think this is a waste of time or their stuff isn’t worth jack, but I’ve been clearing out loads of clutter and have already made around £2,000 with more stuff to go. By the time it’s all gone I reckon I will have made £3,000. A couple could have double this!

How realistic are Dave Ramsey’s tips on saving for a house deposit? Helpful or out of touch? Join the conversation in the comments below.

Written by Andy


Featured image credit: YouTube

Also check out the MoneyUnshackled YouTube channel, with new videos released every Wednesday and Saturday:

Can You Trust Commission Free Apps? How Do They Make Money?

Hey guys, in the medium to long-term the investment platform you use to invest through must generate a profit for itself or otherwise it will become insolvent, which is bad news for them and potentially you as well. A failed platform could result in your money being locked-up, making it inaccessible for an unknown period of time – possibly several months.

But worse still, is there a risk of actually losing your money when you use a commission free platform? Imagine you had invested for several years, built-up a tidy investment pot, which was your ticket to freedom, only to lose the lot because you tried to save a few quid on each trade and picked a dud investment app.

In this post we’re going to look at some examples of how investment platforms are making money such as Freetrade, InvestEngine, and even more established platforms like Hargreaves Lansdown. We’ll discuss whether it’s safe to invest on a platform if they make a loss and look at some of the other drawbacks of using commission-free apps.

One of the many reasons to use a commission-free app is the generous new customer welcome offers such as free stocks and free cash that many of these platforms provide. The Money Unshackled Offers page lists as many of these as we can arrange for you, so it’s worth checking that out if you’re looking for a new investment app.

Alternatively Watch The YouTube Video > > >

How Exactly Do The More Established Platforms Make Money?

Let’s first take a look at how the existing major players are making their money as it helps to put things into context. Some of the big boys like Hargreaves Lansdown are publicly traded companies, and many of these will give an overview of their revenue breakdown in their annual reports, so we can see precisely how their business model works.

Hargreaves Lansdown Revenue Breakdown

In the latest annual report from Hargreaves Lansdown, on page 145 of 188… yawn… we can see they made £631m and 37% of this was from ‘fees on stockbroking transactions’. Surprisingly, this was up from 23% of overall revenue in the year before. So, in a market where commission-free apps are hoovering up new customers, Hargreaves Lansdown is seemingly becoming more dependent on trading fees.

Also, their overall revenue increased year-on year by around £80m, which is mostly driven by increased revenue on trading transactions – a revenue stream which we think is massively under threat. This post is not meant to be an assessment on whether you should invest in this stock, but it doesn’t paint a pretty picture.

Moreover, £264m or 42% of their revenue was from ‘Platform fees’. This is the charge for you simply having your money sit on their platform. The commission-free apps are not all targeting the elimination of this revenue stream so vehemently as they are with trading fees, but it is also under threat.

Interactive Investor Revenue Breakdown

We didn’t think we would be able to get our hands on Interactive Investor’s revenue breakdown as it was a privately owned company, but they have indeed published accounts for the year 2020 and we’re shocked. 51% of their revenue came from trading transactions. I’m sure I had previously read that trading was not a significant influence on revenue, but this clearly shows it is.

AJ Bell Youinvest Revenue Breakdown

And finally, AJ Bell is similar to the others with the majority of their revenue coming from platform charges, and then trading transactions.

How Do ‘Commission-Free’ Apps Make Money?

As of now most of them don’t make money or at least not enough to turn a profit. I suppose before we go any further down the rabbit hole we should explain what commission-free investing is. Commission-free investing does not mean free. Generally, it means that placing trades is free but even that is questionable.

As we have seen, the established platforms make the bulk of their money from administration fees and trading fees. Those trading fees have tended to be around £10 per trade, which seems outrageous in this day and age, and makes investing only accessible to the rich.

The commission-free apps have done away with trading fees but most still continue to charge some sort of administration or account fee to hold your investments with them.

Freetrade openly admit that they run a freemium pricing model, and for fans of South Park you’ll know that “mium” in Freemium is latin for “not really”.  The freemium business model is where they give a basic service away for free and then upsell other products that customers will pay for.

It’s not exactly a new business model; UK banks have been giving out free current accounts for forever as far as we know, and instead make their money by charging a minority of clients interest on overdrafts and credit cards, and whatever else they can upsell. We have never heard anyone question the sustainability of free banking even though it surely costs the banks billions.

In the UK, Freetrade is the granddaddy of free trading apps. In their 2020 accounts, the auditors highlighted that Freetrade would need to raise additional funding during the year in order to meet their cash requirements and that this represents a material uncertainty.

This is not yet a problem; it’s actually quite normal for a new business. Freetrade, just like most other startups are in the rapid growth stage of their business, where making a loss is to be expected. But how do the commission-free apps intend to make a profit?

#1 – Charge For Certain Account Types

Some commission-free apps are giving you access to a general investing account for free but charging small amounts for ISAs and SIPPs. Freetrade is one such platform, but we don’t think charging for an ISA is sustainable because the increasingly hot competition are not doing this. In fact, Freetrade were probably given a lifeline when Trading 212 closed to new investors as Trading 212’s ISA account was free. Meanwhile, other free trading apps have flooded the scene and also don’t charge for this.

In contrast, charging for SIPPs is probably more sustainable (certainly over the next few years) because most new investing apps don’t offer SIPPs yet, and the older established platforms charge too much. Freetrade have been able to charge £10 a month for their SIPP and this still undercuts most of the competition. We actually showed in this video that Freetrade offer one of the cheapest SIPPs on the market for larger pension pots, despite the £10 a month fee – even cheaper than Vanguard’s in some scenarios.

Trading 212 was an existing profitable CFD platform before they side stepped into offering real stock investing. In their accounts they say their new stockbroking business did not generate material revenue during the year, despite the large growth in the number of accounts. They go on to say that they have a pathway towards monetising this line of business.

However, it seems as though offering free trading on real stocks has elevated its CFD business with revenue growing from £2m in 2019 to £54.3m in 2020, while a loss has become a £21.9m profit. That, ladies and gentlemen, is how you make a success of charging nothing for your product. Essentially, their stockbroking business has been a marketing machine for their CFD business, which makes all the money.

#2 – FX Fees

Most commission-free apps have continued to charge nasty FX fees – better than what we had before, granted, but still too high. The best stocks in the world are frequently based in the US and priced in dollars, so in a way these FX fees are just another type of trading commission that is unavoidable unless you trade less or stick to boring UK stocks.

#3 – Interest Rate Arbitrage

Not all money deposited on a platform is invested and it often just sits there in cash. Your broker is unlikely to be paying you interest on this but is almost certainly scooping it up for themselves. In recent years this has probably not been a massive earner for the platforms due to pathetic interest rates, but times are changing, and rates are rising and so could become a nice little earner.

Even with dire interest rates Hargreaves Lansdown still managed to pocket a tidy £52m in a single year (see breakdown image at top of article). How? By managing in excess of £100 billion of client assets, of which some (likely billions) will sit in cash.

#4 – Securities Lending

Recently, Freetrade announced that they would introduce securities lending in a step towards becoming a more sustainable business – or in other words, a profit-making business. Securities lending is the practice of loaning shares to other investors or firms, and in return a fee is paid to the lender.

This kicked up a bit of stink on social media as it is short sellers who borrow stocks and then try to push the price down. The borrower hopes to profit by selling the security and buying it back later at a lower price. So, you could argue there is a conflict of interest. Whatever your views, securities lending is common, and is a way that platforms can reduce the cost of trading for you. Seems fair enough.

#5 – Managed Service

InvestEngine is another commission-free app that is taking the world by storm and yet we regularly get asked how they make money. Well before they launched their do-it-yourself investing service, they first launched a managed service, for which they charge 0.25%. Currently 2/3rds of clients’ assets are managed and in their own words InvestEngine are using their free investing service to draw new customers in and then they aim to up-sell them to a premium service.

#6 – Margin Lending

We’ve not yet seen any UK commission-free platforms offer margin accounts but it’s super popular in the US. According to InvestEngine’s crowdfunding investment deck, they plan to introduce this, which we believe could be a great money spinner. Margin lending is simply borrowing to invest in shares and other financial products using your existing investments as security. You pay interest when you do this.

What About The Spread?

It’s commonly believed by many new investors that platforms simply widen the spread between the buy and sell prices of stocks and profit from this. However, FCA-regulated brokers are obliged by law to obtain the best result for the client. Price and costs are some of the key factors that must be considered.

Some excellent research by monevator.com found that etoro controls the spread for CFDs as they set both the sell price and the buy price. In their T&Cs they state that they are required to act in your best interest when providing services. However, there may be instances where your interest conflicts with their interests such as CFD trading. Whereas in the fee schedule for 0% commission stocks they state that the spread is determined by the market and not by eToro.

Analysis carried out by brokerchooser.com found that the spreads are basically the same among all brokers, and the best execution prices are usually very close to each other. Based on this they concluded that you don’t get a compromised execution if you open an account with a newcomer, but you pay far less for it in terms of fees.

Is It Safe To Invest On A Loss-Making Platform?

In most cases, yes it will be safe. You should always check that the business is authorised and regulated by the FCA. Simply go to the FCA site and search for the company. When they are authorised you will know that your money is ringfenced and segregated from the investment platform’s own business and protected by the financial services compensation scheme. There will also usually be a page on the platform’s own site detailing what precautions they have in place.

Beyond that if you wanted to be extra careful you could consider the roadmap of the investment platform, which many of them make available on their website or when they raise capital. What services do they intend to offer down the road, what will they charge for these, and how likely is it that they will ever turn a profit?

Personally, we’re not too concerned by this. If any of these new commission-free platforms fail, they will likely be easily wound up due to their small size, and clients’ assets will likely be transferred to a different broker. In the P2P Lending space, many platforms have closed but successfully returned clients’ investments, and these had considerably less protection than a stocks and shares investment platform.

Drawbacks Of Using A Commission-Free Platform

We are generalising a lot as there any many commission-free apps all offering different levels of service, but generally, the main drawbacks are as follows:

  • A smaller investment range – the expensive older platforms tend to offer any investment you can imagine.
  • Fewer account types offered – SIPPs are currently quite rare, and Lifetime ISAs and Junior ISAs are practically non-existent.
  • A watered-down customer service – sometimes being able to pick up the phone is useful but this isn’t normally an option. However, in-app chats on the whole have been excellent.
  • Encouraged to trade frequently – even without fees there is still a cost to invest and always will be due to the bid offer spread and possible stamp duty taxes. Therefore, trading frequently is often bad for your pocket.
  • Pooled orders – pooled orders is a cost saving technique used by some platforms. Although it shouldn’t really bother long-term investors too much it is still nice to know your order has been executed straight away.
  • No automatic investing – the best way to invest is to set it on autopilot and forget about it. Each month your bank will send money to your investment app, and they will automatically invest this according to your plan. InvestEngine are one of the few who offer this without charging but unfortunately, many free apps do not currently have this feature at all.

That brings an end to our take on commission free investing apps. They have come a long way in the last few years and are getting better almost day by day. We believe it’s only a matter of time before the big boys all follow suit and cut their fees. We can’t wait to see how this plays out.

Remember, if you want to sign up to a commission-free platform, we probably have a new customer offer for it on the Money Unshackled Offers Page, so check that out first.

Are you worried about using commission-free investing apps? Join the conversation in the comments below.

Written by Andy

Featured image credit: thinkhubstudio/Shutterstock.com

Also check out the MoneyUnshackled YouTube channel, with new videos released every Wednesday and Saturday:

AJ Bell Dodl Review – New Commission-Free Investing App

AJ Bell have launched their much-anticipated commission-free investing app, known as Dodl, which is set to compete with the likes of Freetrade, Trading 212, InvestEngine, and all the other great investing apps which are driving down the cost of investing for ordinary people like us.

In this article we’ll be reviewing Dodl, looking at what account types they offer, the fees being charged, the available investment range, what we like, what we don’t like, and how it compares to the alternatives. Hopefully by the end of this review you’ll know whether you want to start investing with Dodl by AJ Bell.

As always this is a totally independent review and we’re not being paid by Dodl in any way. We do everything we can to bring you the best customer offers on financial products, so if we do ever get a Dodl welcome bonus or any other such offer, we will of course put it on the Money Unshackled Offers page, so that’ll be worth checking out first. Right now there are thousands of pounds worth of other offers (such as free shares and cash) up for grabs from competing investment apps. Now, with that said, let’s check it out…

Alternatively Watch The YouTube Video > > >

What Are The Charges?

Let’s kick off by stating the fees because there’s little point in listing a tonne of amazing features if you have to pay through to nose to use it. Well, we’re pleased to announce that they have kept things super simple – which we love.

There is a 0.15% annual account fee which is charged on the value of your investments and paid monthly. However, there is a minimum charge of £1 per month, which means if you’ve got barely any money invested it can be relatively expensive.

For example, for the purpose of this review I dropped in £100. So that £1 monthly fee would be a 12% annual fee if I didn’t add any more money. You’ll need £8,000 invested before you start paying 0.15%.

You can easily calculate what percentage you’ll be paying by dividing £12 by the value of your investments, with 0.15% being the minimum. So, if you have £3,000 invested that comes out at a 0.40% fee. That would be quite expensive; for comparison Vanguard charge 0.15% with no minimum pound amount, and InvestEngine charge no account fee whatsoever.

There is also no top-end cap on the fees charged, which means charges can get out of hand once you start building a sizable investment pot. Based on the competition and what we consider reasonable, our rule of thumb is that you dont want to pay much more than £10 a month or £120 a year. When your Dodl investments reach £80,000 that is when the fee begins to exceed £120 a year, and you might want to consider looking elsewhere.

Annoyingly and this is nit-picking, there seems to be only one way to pay the account fee and that is for it to come out of your available cash in your account. Our problem with this is that you always have to have some cash available just sitting there for this reason otherwise it would be an outstanding balance. Once this balance gets to £5, they will get in touch with you.

With some other investment platforms, you have the option to have the fee taken from your bank account via direct debit instead or have some of your investments automatically sold to cover the fee.

As for trading fees, there are no charges to buy and sell your investments, which is awesome, and what we now expect as standard from investing platforms. There is a smallish foreign exchange fee of 0.5%, which you’ll incur if a company or fund you own pays a dividend in another currency, but most platforms carry a similar sized FX fee so is not unusual.

What Accounts Does Dodl Offer?

This is where Dodl has taken an active lead in improving what we currently have available from other commission-free apps. Not only do they offer a General Investment Account and an ISA – they are also offering a Pension and a Lifetime ISA as well, which are two products that they have competitively priced at 0.15%. For comparison, AJ Bell’s Youinvest Lifetime ISA costs 0.25% and Hargreaves Lansdown is 0.45%, although both of these have caps on shares.

Those Dodl fees we mentioned previously apply no matter which accounts you use but bear in mind the minimum £1 monthly fee is charged per account, so if you have an ISA, a Pension, and a General Investment Account, the minimum fee would be £3 per month.

What Is The Investment Range Like?

This is probably the biggest disappointment! You can tell the guys at Trading 212, InvestEngine, Freetrade, and others are trying to create the best investment platforms they can with the resources they have, but our guess is that AJ Bell are deliberately offering a disappointing range to avoid cannibalising their existing Youinvest platform. New investors might like this very simplified range but for experienced investors the choice is very limited.

It would also seem that Dodl are slightly embarrassed with the investment range as the only way to see it is to download the app – a step that a lot of people wouldn’t bother with if they had seen what was available before.

Pension Replacement Rates

So you can avoid this hassle we went ahead and asked them to send us the full list and as of the 22nd April this is it. The investment range is split into 3 broad categories: AJ Bell Funds, Themed Investments, and Shares.

It is clear that the app is geared towards promoting AJ Bell’s own funds, which in our opinion are slightly overpriced.  The cynic in me would say they are offering a very cheap investment app and then hoping to recoup some of those lost profits by pushing new investors towards their own funds. The AJ Bell Growth funds all seem to charge 0.31% which isn’t outrageous by any means but price sensitive investors like us do prefer to pay less.

Next, we have Themed Investments. These are just funds and ETFs that have been rebadged with what is meant to be a helpful name. For example, the ‘global climbers’ theme is the iShares Emerging Markets Index Fund. Noob investors will likely benefit from the dumbing down of terminology, but we found it made things more difficult for us as we could no longer see what an investment was based on the name alone.  We wish they would have provided users with the ability to toggle real names on and off.

One theme (or fund) that we particularly like is ‘On top of the world’, which is really the HSBC FTSE All-World Index fund. This tracks the same index as the very popular Vanguard VWRL that everyone raves about but does it for a fraction of the price, costing just 0.13%. This HSBC fund is one of our favourite ways to track the whole world, and if we were to switch, say, our pensions to Dodl, we’d personally put all our money in this fund.

And finally, there are 50 UK stocks to choose from by our count. This might be enough for a casual noob investor but for anyone who wants to pick the best stocks it’s unlikely to be in this small list. Other commission-free apps make available thousands of stocks.

Naturally, most investors will want to invest in the big American companies like Amazon and Apple, but you can’t yet buy US stocks on Dodl, although they do say it’s on their roadmap. Nevertheless, based on the small range of UK stocks we can’t imagine they will ever make available thousands of US stocks, so it’s probably not something to wait around for. For one thing, making available thousands of stocks for free would undermine their Youinvest platform.

Other Things Worth Knowing

Low Minimum Investment Amount – You can start investing with as little as £100 for a one-off contribution or £25 if you setup a monthly direct debit. If you do start with the bare minimum do remember that the minimum monthly fee of £1 will massively eat into your contributions, so you will want to scale up your overall investment pot fairly quickly.

Good Customer Service – It’s always handy to have a responsive and helpful customer service. In order to clarify a few points for this review, we got in touch with Dodl and found them to be polite, helpful and they responded quickly. You get in touch with them via the in-app chat or via their website. There is no phone number, which might be a drawback for some.

Delayed Orders – When you submit an order Dodl will process it either later that day or the next day. Admittedly, this is annoying but for fund investors it’s something we can tolerate. In fact, this is similar to InvestEngine and is how Freetrade used to behave back in the day when they first launched.

The problem is that this type of order processing is dangerous when it comes to buying and selling individual stocks because you don’t know what the share price will be at the time of the transaction. Funds are unlikely to move massively within a day, but shares can have enormous swings. You could end up paying far more per share than you are comfortable with.

App Only – There is no website platform, so the only place you can buy, sell and do everything else is via the Apple or Android Apps. We can’t imagine this is too much of an issue for the younger audience which Dodl are clearly targeting but we always like to have a website platform as well as an app. If you lost your phone, you might not have access to your investments until you were all setup with a new one.

Monthly Investing – Some commission-free investing apps do not allow you to automatically invest on a monthly basis or charge you to do so. We’re big believers that regularly investing on autopilot is one of the best ways to build long-term wealth. With Dodl, you can set up a direct debit and invest into as many of the available investments as you like.

No Information On Available Investments – With the older investment platforms like Interactive Investor you get given a tonne of information about the fund or stock that you’re thinking about investing in. Unfortunately, with Dodl there is practically zero information within the app. For an app aimed at beginners many will have no idea what they’re actually investing in. Clued up investors will know how to find this information elsewhere, but they shouldn’t have to.

InvestEngine, a competing commission-free app, which specialises in ETFs serves up loads of information that an investor would need to know before investing right within the app. For example, you can view the fund objective, geographical breakdown, all of the underlying holdings, of which there may be thousands, and so on. You can even download the fund fact sheet, which is essential reading before investing in any fund.

Good, Intuitive App… But A Little Slow – The app is super clean, easy to navigate and looks good. If we had to complain about one thing here though it would be navigation speed – it seems to have a slight delay before loading each page and you get a split second of a spinning wheel. You might think we’re being pedantic about such a minor issue in speed but research by Google found that people search less if search results are even slowed by a fraction of a second. People have no patience and why should they?

Can’t Transfer In…Yet – Currently, you can’t transfer-in to any of their accounts but apparently, they are working on this. Our guess is that once they’ve been up and running a little while and ironed out any bugs they will be fast to enable transfers-in, so watch this space. At the end of the day, they make their money by holding your assets, so the more money you have with them, the more readies they make.

Our Final Thoughts

We’ll never complain about increased competition because this is what drives down fees for consumers. We’re currently spoiled for choice and there are more investing apps popping up all the time. Dodl may not be making big waves when it comes to General and ISA accounts, but we think a lot of people will be interested in their Pension and Lifetime ISA, which are amongst the cheapest on the market.

So, that wraps up the review! Some of the apps we’ve mentioned today have offers on the MU offers page, so check those out. Let us know down in the comments what you like and dislike about Dodl, and if you’re still unsure, feel free to ask us any questions. We do our best to answer as many as we can.

Written By Andy

Also check out the MoneyUnshackled YouTube channel, with new videos released every Wednesday and Saturday:

Starling Bank Current Account Review – The Best UK Bank?

In this post we’re reviewing the Starling Bank Personal Current account. I’ve been using Starling for several months now and overall I’m very happy, but that’s not to say there hasn’t been any issues at all.

In this review of Starling we’ll look at the key features, what makes it so good, the few areas that make it not so good, and finally look at the cost. Hopefully by the end of this video you’ll know whether you want to start banking with Starling Bank.

Just so you know, this is a totally independent review and we’re not being paid by Starling in any way. Here at Money Unshackled we do everything we can to bring you the best customer offers on financial products, so if we do ever get a Starling welcome bonus or any other such offer, we will of course put it on the Money Unshackled Offers page, so that’ll be worth checking out first.

Right now there are thousands of pounds worth of other offers up for grabs like multiple free shares, discounts on investing services, and hundreds of pounds of free cash. Now, with that said, let’s check out Starling…

Alternatively Watch The YouTube Video > > >

What Is Starling Bank?

There is an old adage that an Englishman is more likely to change his wife than his bank account, and research carried by YouGov found that this may have been based on truth, with most Brits sticking with their current account for decades. 35% of people have had the same current account for over 20 years.

Not that long ago there was little point in changing your bank account. They all did exactly the same thing and there was no differentiation between them. But in recent years this has all changed with massive disruption being driven by the so-called challenger banks, of which Starling is at the forefront. Now there is every reason to change your bank.

Starling Bank is an award-winning, fully-licensed and regulated bank and in their own words, it’s built to give people a fairer, smarter and more human alternative to the banks of the past. They offer a range of accounts including personal, business, and accounts for children. You will of course be protected by the Financial Services Compensation Scheme, which protects up to £85,000 of your cash.

Starling was founded in 2014 and were voted Best British Bank in 2018, 2019, 2020 and 2021. They are also rated as Excellent on Trustpilot and has seen 2.7 million customer accounts opened.

Starling Bank Key Features & What We Like

It’s Completely Digital – Starling has been built for use on the go. There are no bank branches, and you can do everything from within the app. They do also offer a very clean and tidy website version for logging in from a computer, but we found there was no real reason to use this. In fact, I had never even logged in to the website until it came to doing this review. The app can handle it all.

And you don’t need one of those annoying card readers that so many other banks continue to impose on us.

Instant Notifications – Now this is a feature that I absolutely love. Whenever you make a payment or have money enter your account you get an immediate notification – and I mean it’s fast. Say I’m making a purchase online using my Starling card. Before the retailer’s confirmation page has even confirmed the order my phone is vibrating saying money has left my account.

One benefit of this is the fight against fraud. If money ever leaves your account without your authorisation, you’ll know immediately and can respond within seconds.

Categorised Spending Insights – All your spending within your main account is automatically categorised, so you can quickly see how much you’re spending in any given month on groceries, on transport, on bills, and so on.

There is no need to download transactions to a spreadsheet, which barely anyone ever does anyway because who has the time, nor do you need to use an external budgeting app. Starling makes monitoring your spending almost as easy as it can get.

The app ranks the categories in order of importance (that is highest cost to lowest), shows the percentage of your spend for each category as a percentage of the total, and allows you to drill into each category so you can see which retailers you’re spending all your money at.

For people who already budget like this, Starling will make your life easier, but for those who have never budgeted before, Starling’s categories will revolutionise your spending.

Spaces And Bills Manager – Okay, so the name isn’t the best. In truth, just saying the word “Spaces” makes me cringe. Monzo’s Pots gets the accolade for the best name, but the idea itself is a game changer. Within your main account you can set up multiple Saving Spaces. Say you wanted to save for a holiday, you could setup a virtual piggy bank and automatically (or manually) transfer a sum of money into the Space.

A nice gesture from Starling is that they won’t charge overdraft fees if the sum of the money in your Spaces plus your main balance is positive. For example, if you are £200 into your arranged overdraft in your main account, but you have £300 in one of your Saving Spaces then your overall net balance will be £100 and you will not be charged any fees for being in your arranged overdraft.

Moreover, these Spaces are much better than just a standard savings account because towards the end of 2021, Starling introduced what they call Bills Manager. This new feature allows you to pay Direct Debits or standing orders directly from each Saving Space.

You might typically use this to pay all your regular fixed monthly bills, which is exactly what I do. At the start of the month you can automatically transfer enough money into one or more of your Saving Spaces from your main account, and through the month all your bills can be taken from these, making budgeting super easy. With all your bills now being handled from a ring-fenced Saving Space, everything that’s left in your main account is for discretionary spending.

No Fees Overseas – One of our bugbears is when companies take advantage of their customers. And many banks see holidaymakers as ripe for the taking, charging rip-off foreign exchange fees and charges because they know they likely won’t switch their bank account just for this. Money Saving Expert calls them ‘the debit cards from hell’.

For financially savvy people there are ways around this such as by getting a special travel credit card. But for most people applying for a credit card just for a 2-week holiday is too much bother.

Decent banks like Starling have a done away with nasty fees. They won’t charge you for adding money to your card, withdrawing cash from an ATM abroad, or spending transactions on your card. You get the real exchange rate provided by Mastercard.

It’s also worth noting that when shopping online some websites price their services in a foreign currency like US dollars, so with Starling you can rest assured that you’re paying what you expect.

Round-Ups – This is a feature we would personally never use as we think saving should be intentional and planned, but we accept that many people like the service. Roundups will automatically round your spending up to the nearest quid and put that spare change in a Space. We tested it on Starling for the purpose of this review and it works well. As soon as the transaction takes place the change is instantly taken and put aside.

Connected Card – If you need someone to spend on your behalf such as a childminder, a carer, or even just a friend – maybe you’re disabled, and someone does your shopping for you – you can give them a card that is assigned to one of your Spaces. This is capped at £200, so you’re always in control.

Starling state that this is currently free but the fact that they even mention the word ‘currently’ sounds like they are leaving the door open to charge for this feature in future – let’s hope we’re wrong.

This is not a feature I have had to use myself, but we think it’s a fantastic innovation. There are many more great features that we’ve yet to mention but in the interest of keeping this review short and concise, let us now move on to:

What We Don’t Like

Very Low Interest – Talking of interest, Starling pays a measly 0.05% at the time of making this video and this is something that they obviously don’t display prominently on their site as they do with their other great features. Most banks pay zero interest on current accounts, so we can’t complain too much. However, that also means that your savings in your Spaces also earn just 0.05%, whereas other banks will usually pay closer to the Bank Of England’s base rate for their savings accounts.

Recurring Payments And Card Payments Cannot Be Spent From A Saving Space – This has to be the biggest drawback and we’re being very harsh but it kind of reduces the usefulness of the Saving Spaces. Many companies like Netflix and Spotify bill you monthly by charging your long card number – this is known as a recurring payment.

Annoyingly there is no way to have the money taken from a Saving Space. The same is true whenever you use the long card number over the internet or for a purchase in a retail store, so as it stands, for some transactions they must still come from your main account.

Backdated Transactions – For a few months I was having 1 monthly payment from my mobile network being backdated to a prior month. For example, an October payment would appear in my July transactions, then the November payment would also appear in July. This was shocking as you can’t just have transactions appear in the past as how often do you check your banking history? – never!

Starling blamed my mobile network and said it was an issue with the way the payment was being processed by Voxi, my network provider. Either way, this was not an issue I had ever come across before and I would expect Starling to have some sort of error handling in place to prevent this. Having said all this, it was eventually resolved, and it doesn’t happen anymore – for me at least.

Failed Transfers Don’t Repeat – Our final complaint is that automatic transfers between your main account and a Space that fails due to lack of funds are not re-attempted later in the day, nor is the timing adjusted for bank holidays.

For example, say you have £1,000 sent on a monthly basis from your main balance to a Space for your bills but first you’re relying on your salary to arrive in your main account. Due to a bank holiday or even a weekend your main account has not received this money, so the automatic transfer to your Bills Space fails. Unless you are vigilant your bills will start bouncing as there is no money within this Space.

How Much Does A Starling Bank Personal Account Cost?

All the features we’ve discussed so far, incredibly, are free. This might be the most feature-packed banking app there is that doesn’t charge for most of what they offer.

For many people they will never need to pay a dime to Starling but there are some other features that they do charge for. Oddly they charge £2 per month for a child’s account that is linked to yours. It’s a cool feature to offer but it doesn’t seem logical or fair to charge for children’s banking.

I can’t say we’re experts on child accounts, but Ben’s (MU Co-founder) daughter’s bank account is with Santander and is fee-free and we suspect most other banks would be too.

What is probably Starling’s biggest money spinner is the interest charged on overdrafts – but having said this, they seem quite reasonable compared to the rest of the market. They charge interest rates of 15%, 25% and 35%. Presumably the higher risk you are considered to be, the more they will charge.

One feature we didn’t mention earlier is international money transfers. We suspect most people will never need this but it’s very handy if you do. For this they charge just 0.4% plus a flat fee depending on the currency. This can be as low as 30p.

So, that wraps up the review! Let us know down in the comments what you like and dislike about Starling, and if you’re still unsure, feel free to ask us any questions. We do our best to answer as many as we can.

Written by Andy


Featured image credit: Ascannio/Shutterstock.com

Also check out the MoneyUnshackled YouTube channel, with new videos released every Wednesday and Saturday:

State Pension Will Surely Be Shut Down – Act Now!

In this post we need talk about the impending catastrophe that is the state pension. We’ve said it before and we’ll say it again, don’t expect the state pension to be around when you retire. Even if the state pension is not completely scrapped it will be heavily cut by at least one of many methods available to the government. It’s practically a certainty!

We’d assume that most people who watch our videos have some money invested, even if it’s just a little. Well, you guys should be especially concerned about future changes to the state pension because its people with money who will be most in the firing line.

We don’t think the impending retirement disaster gets anywhere near the amount of coverage that it needs. Our guess is that the media don’t mention it because it’s a story that’s been slowly growing for a generation, and it always seems like tomorrow’s problem. But if the media don’t mention it the government won’t feel the pressure to act.

The whole country is always preoccupied with more pressing issues – a few years ago it was Brexit, then it was Covid, and right now it’s war and rising inflation and the cost of living. How much longer can we kick the can down the road?

Today we’re looking at the importance of the state pension, why it will almost certainly be scrapped or changed for the worse in some way, what will likely happen in our view, and how you can prepare for the inevitable. Now, let’s check it out…

The video version of this post was sponsored by Penfold. Penfold is a fully digital pension service and offers four investment plans, with their most popular being the Lifetime plan, which automatically adjusts the risk level of your investments over time as you approach retirement. Open an account with penfold via the link found on the MU Offers page and you’ll get a £25 bonus added to your account. T&Cs apply, and as with all investments your capital is at risk.

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Why The State Pension Matters

From April 2022 the state pension will be around £185 a week, which is £9,628 a year, or about £802 a month.

According to Which? research two people would spend £26,000 a year to achieve a comfortable retirement, which buys you some lower-end luxuries, such as European holidays, hobbies and eating out. A couple would need £41,000 a year if you included luxuries such as long-haul trips and a new car every five years.

We’re going to largely ignore what Which are saying is needed for an Essential lifestyle (£18,000), which allows no luxuries whatsoever, as merely surviving is no way to live. We imagine nobody watching our videos would be content with so little. But it’s interesting to note that a couple could theoretically survive with just 2 state pensions and no savings of their own. According to research by unbiased.co.uk, one in six people over-55 have no pension savings whatsoever, so the state pension is a lifeline to them.

Running with the £26,000 figure for a comfortable retirement would likely require an investment pot of £650,000 by our calculations. Let’s be frank, most ordinary people have no chance of ever achieving this.

But if we take into account the 2 state pensions that a couple would receive that means they only need to fund £6,800 a year from their own investments.  This lowers their required investment pot to just £170,000, which is much more achievable, and means the state pension for a couple is effectively the equivalent of a £480,000 investment portfolio for the income it provides.

Essentially when combined with private pensions the state pension has the power to lift people out of poverty and into relative comfort. The state pension is not just a safety blanket – it’s transformational, turning a basic retirement funded by private pensions alone into a comparatively lavish one.

Going forwards people are likely to be even more dependent on the state pension than what these numbers suggest. The research carried out by Which was conducted by speaking to existing retirees but based on generational changes we’re predicting that peoples’ finances on average will be far worse than the existing crop of retirees.

For a start, if you are retired and own your own home outright, then you don’t need to worry about paying any rent, but can this achievement be assumed to be replicated for those still of working age today? Housing costs make up a huge portion of your budget, so all those numbers we just discussed should be hiked upwards for those who won’t own their home.

This is super important because there are decreasing numbers of young people who own homes. In 1991, 67% of the 25 to 34 age group were homeowners. By 2011, this had declined to just 43%. More recent data showed that people in their mid-30s to mid-40s are three times more likely to rent than 20 years ago.

These trends are likely to have a double impact: more people will be forced to pay rent throughout retirement, perhaps requiring an extra 10 grand a year of pension income to reach a comfortable lifestyle; and they are likely to save less during their working years as rent payments always rise over time. The inevitable result of which is them needing the state to bail them out in their old age.

Why You Can’t Rely On The State Pension

The age you receive the state pension depends on when you were born; the age will rise to 67 by 2028, and according to the government’s own prediction it should rise to 68 by the mid-2030s, and 69 by the late 2040s. The age is already being slowly increased, so it seems a given that we should expect further rises.

The current cost of providing the state pension is greater than the money being collected in national insurance contributions, and according to FTAdviser the difference is being funded by Treasury grants that are limited to 17% of the year’s expenditure, and even with these payments the Government Actuary’s Department estimates that the UK’s state pension fund could run dry by 2033.

The cost of the state pension is now at £100bn a year and is rising rapidly year-in, year-out. The country is underfunded in so many areas such as the NHS and policing (and everything else come to think about it) that you have to wonder how the government can continue paying out such an expensive benefit.

With rising tensions and a clear threat from a changing world order it’s very important that we spend more money on our military. Not doing so would be dangerous and irresponsible. Cuts elsewhere will need to be made.

The state pension is effectively a gigantic pyramid scheme. When you pay national insurance, this isn’t put aside for your future, no, no, no. This is spent immediately on existing pensioners. Your future state pension relies on future generations paying for you. With the current setup you’ll likely be relying on kids who haven’t even been born yet to toil in factories and office buildings to pay for your retirement with their hard effort. We’ve never heard of a pyramid scheme that can continue indefinitely. Sooner or later the whole thing comes crashing down.

There are 1,000 contributing workers supporting every 310 claiming pensioners. By 2036, this is expected to rise to 1,000 workers for every 360 pensioners. Why do you think the government does everything in its power to keep the population growing? They proclaim to desire to reduce immigration but ensure they do nothing to prevent it, or else risk toppling the pensions pyramid.

The situation is made worse by the fact that the money paid to pensioners increases by the triple lock, whereas national insurance contributions increase in line with earnings. Following a period of low wage increases and low inflation, the pension cost will climb and become even more excessive. One of the guarantees of the triple lock is that pensions increase by an arbitrary minimum of 2.5%.

Pension Replacement Rates

It’s commonly claimed that the UK has the worst state pension among developed countries, based on data published by the OECD as seen in this chart. UK pensioners who were average earners can expect just 28% of their annual career earnings from the state pension. Interestingly, many countries like Austria, Portugal, and Turkey can expect to replace almost all of their job earnings with their state pension.

The UK launched the auto enrolment scheme some years back. Many people might consider this to be a top-up to the state pension, but we think it’s been brought in to lay the groundwork for a future government to finally slash the state pension by claiming that these people don’t need it.

The suspension of the triple lock during 2022 is another incremental step towards the government’s end goal. Once seen as untouchable, the triple lock was temporarily removed, citing a “statistical anomaly” caused by Covid. Sadly, this demonstrates that even an ironclad guarantee like the pension triple lock can be broken! And when it has been done once it acts as a precedent in future for further cuts.

And finally, and perhaps one issue we have never even considered until recently is the possibility of a total collapse of the country. A few weeks ago, a situation like this might have been considered so unlikely that it was nothing less than sensationalist panic, but the Ukraine crisis is a terrible reminder that we can’t take anything for granted.

The humanitarian crisis created by Russia’s invasion of Ukraine has caused millions of people to flee. One consequence of this is that these people are likely walking away from any state pension they might have earned. We can’t imagine any Russian puppet state will honour any pensions that were being accrued, and likewise should Ukraine repel the invaders their country will be in such a dire state it will take decades to recover.

We’re not saying this exact scenario will happen to the UK but it’s worth taking stock of what shocking events can happen and how severe the consequences can be.

What Will Likely Happen To The State Pension?

Avoiding any catastrophic events, one option is some sort of means testing that takes effect in the future. Considering that old people vote, and young people don’t it seems plausible that the government will eventually draw a line and say there will be no further automatic entitlement to the state pension. Past entitlements would likely be honoured as otherwise there would be riots in the streets – and the nursing homes.

Young people, say those under 25, will be less affected by this run-off because they should have a lifetime of saving into the auto enrolment scheme. Somebody who is auto enrolled into a workplace pension earning £30k for 40 years with typical investment growth might end up with a pension pot of £235,000 in today’s value of money and a couple could have double this, approximately replacing the purchasing power of the state pension.

A less decisive option they will continue to take is to keep gradually increasing the age you can claim the state pension. In theory this keeps people working longer and therefore continuing to pay into the system, and simultaneously reduces the number of people taking from the system.

They might also change the rules so that you need more NI qualifying years to qualify for the full state pension. Currently you need to have been paying NI for 35 years, but this was only recently changed from 30 years. This could be increased in steps to, say, 50 years.

Think about this, you may still choose to retire at 55 because you have the private retirement savings to do so, but you would be sacrificing your entitlement to the full state pension by not working the full 50 years.

But questions need to be asked about how feasible increasing the age you can claim is. Many jobs cannot have an average 65-year-old doing them. To be a bricklayer you need to be fit and strong, so it’s clearly not a suitable job for Albert and his bad back.

What You Can Do It About It

Relying on the government (or anyone for that matter) is a recipe for disaster. Nobody will care about your wellbeing as much as you do. Our suggestion for you is to pay the maximum that your employer will match into your workplace pension. Because you never see this money in your bank account you get used to living on your take home pay, which is one reason why saving for retirement like this is so effective.

Many workplace pensions will only match the pathetic statutory minimum, so you should also pay more into a private pension and/or a Stocks and Shares ISA.

A pension has age access restrictions, which on the face of it may seem limiting but for ordinary people who might be tempted to spend this money this restriction can be a blessing in disguise. Discussing the merits of ISAs vs Pensions would be an entire video/post in itself, but we discuss how best to use both accounts in tandem here to efficiently save for retirement.

How much should you pay in total to retirement savings? There’s no better way to estimate this than to play with an online retirement calculator. This one will tell you how many years you have until you can retire, and you can change all sorts of variables such as investment returns, your age, your earnings and expenses, and your withdrawal rate.

The rule of thumb has always been to save 10% of your earnings for your entire life but we feel this is too low. You should be looking to put at least 15% away. And if you’re young the more you can invest now, you might be able to take the foot of the gas later. We can’t stress how liberating it is knowing your future is already taken care of.

Barring any disasters and assuming investment growth will be consistent with long-term historical returns, both Ben and I (MU Co-founders) have already achieved investment pots that will pay for our retirements, just through diligent monthly investing during our 20’s and early 30s. Pretty awesome!

What retirement investment plans have you made? And what do you think the fate of the state pension will be? Join the conversation in the comments below.

Written by Andy


Featured image credit: Photographee.eu/Shutterstock.com

Also check out the MoneyUnshackled YouTube channel, with new videos released every Wednesday and Saturday:

My Leveraged Losses

One request we get quite frequently is to do an update on our leveraged strategy – and if you don’t know what this is, not to worry, we’ll give a quick summary to catch you up. At first, we were reluctant to do this update so soon because the strategy’s performance will basically return the same as the market multiplied by whatever leverage was applied, which in our case was a very risky 3x.

But given recent events in the markets driven by the atrocities in Ukraine by Russia we wanted to address any worries you may have if you were implementing the leveraged strategy for yourself.

We had always wondered how we’d react if and when the markets tanked, and we were nursing big losses. The war is the first serious threat to our portfolios in a long time, which is scary enough when you just invest in ETFs or stocks but is downright terrifying when you are leveraged.

We won’t be covering the awful humanitarian crisis and the horrors of the war in this post but instead will focus on the stock market impact. This is in no way to downplay these serious issues, but these are well covered elsewhere in the news and social media.

We are going to revisit the risks of our leveraged strategy and consider whether we should reduce the risk in light of real-world events. Our backtesting had previously warned that we may face losses of up to 90% at 3x leverage.

We’re going to look at my overall performance so far (early Mar 2022) and also break it down by the component parts of the portfolio, which was the S&P 500, long-term US treasury bonds, and gold. We’re going to talk about what’s worrying us right now and the reasons still to be bullish. Now, let’s check it out…

FYI: £50 cash bonuses and FREE stocks listed on the Offers Page.

Alternatively Watch The YouTube Video > > >

As always, check out all the offers for free cash, free stocks, and discounts to many investment services and apps at the Money Unshackled Offers page. We’re always updating this with more goodies and bonuses, so if you’ve not visited in a while check that out!

A Quick Catchup On The Leveraged Portfolio

Essentially, we’re borrowing money to invest with the goal of making massive profits. History tells us that we could make up to around 33% annual profits less any fees. This might sound super risky, but the risk depends on what return you want and the amount of leverage you use, and there are some solid reasons why borrowing a small amount of money to invest can actually lower your overall risk and increase your returns.

The leveraged portfolio breakdown

The portfolio we’re both using is 60% S&P 500, 30% Long-term US Treasury Bonds, and 10% Gold, and applying 3x leverage. We ran some extensive backtesting on this portfolio to see how it would perform with no leverage and benchmarked it to an index consisting of just US large caps, or in other words the S&P 500.

Backtesting of the portfolio

Over 43 years the unleveraged portfolio returned nearly 11% per year, not that much lower than the 12% from US large caps. However, it did this with significantly lower risk, measured here by the standard deviation, which is the volatility. Volatility is what usually kills investors using leverage, so we want to keep this down.

Note, that despite the small difference in annual returns, over 43 years the difference between the final balances is huge.

In a nutshell, this is why we are using leverage to improve our returns because every little increase to your annual returns will have a colossal improvement to your overall gains.

The portfolio’s worst year was a loss of just 17% compared to a massive loss of 37% for US large caps. And the max drawdown, which is the total decline from peak to trough was just 29% for the portfolio vs. a whopping 51% for US large caps.

Remember that these percentage gains and losses will be multiplied by the leverage factor you use. With a max drawdown of 29% this would be a nearly 90% loss with the 3x leverage we’re using. For a full guide on how we use leverage check out our Spread Betting posts, here, and here.

My Performance So Far

Since June 2021 I have deposited £12,400 and I have been drip feeding this money in on a bit of a sporadic basis – usually every month or two. With this cash I have opened up positions that at their peak were worth about £39,000.

I don’t record my profits or losses daily, but I do tend to value the portfolio about once a month. During December I was sitting on nearly £1,500 profit and at the time I had only invested £10,000, so I had made a huge profit in just 6 months.

Amazing! At this rate – with this strategy – we’ll all be millionaires in no time. Sweet!!!! Hang on, hold your horses, this is a leveraged strategy, so any downward swing will hit the portfolio hard and could easily erase all those gains. And it was about January or February time when things started to get bad.

First, we had inflation worries. Energy prices were surging, food prices were going up, and inflation was hitting highs not seen in 30 years. Inflation is particularly bad for speculative stocks because the value of those future profits is worth less – and the US market is full of these types of stocks. Some US stocks were getting hammered and the overall market began to fall – with the S&P 500 going from around 4,800 to around 4,300 – about a 10% decline.

The leveraged portfolio would surely be okay though, right? It’s got 30% allocation to treasury bonds after all, which are purposely in the portfolio to hedge stock market declines. Well, the bonds have been getting hammered too.

The usual way to tackle inflation is to raise interest rates and even just expectations of this will cause bond prices to fall as they have been doing over the last few months. Rising inflation is worrying but it’s the sort of thing that we would expect Western economies to be able to handle and therefore we weren’t overly concerned.

However, stories were also coming in that Russia was building up troops, tanks, planes, and all the military support that would be needed to mount an invasion of its neighbour Ukraine. The stock market was getting jittery.

By this point my near £1,500 profit had swung into a £500 loss, and I believe it was a £1,500 loss on the first day of the invasion. The point we’re trying to make is that the success of our leveraged spread betting strategy cannot be measured in such a short time period as massive gains (percentage wise) can become massive losses in a matter of days.

In early March 2022, my position in the S&P 500 had fallen just 1.2%. This seems so low because many of the investments were made months ago when the S&P was much lower than its peak.

The treasury bonds have fallen 5.3% but Gold however is up 6.5% and earns its place in the portfolio. Gold was intentionally included to save us in the event of a crisis, which at time of writing we certainly look like we’re in.

Why We’re Worried

We have a few big problems with our leveraged investment strategy. The first is the limited backtesting that we’ve run. Unfortunately, for these assets we can only test performance going back around 43 years using the resources available to us.

This might sound like a lot, but this time period does not cover all the events that could happen. Inflationary cycles, economic booms and busts, deadly pandemics, natural disasters, and war, amongst many other things, may not have happened during this time. Yes, we have had a pandemic, but Covid is not exactly the black death.

We honestly thought that World War 3 would never happen but based on recent events you can never say never. Is nuclear war a real possibility? We don’t know but what we do know is that events like this are not factored into our use of 3x leverage.

Other than the small exposure to gold, the portfolio is entirely dependent on the US stock market and bond market, and even though the stocks will have global exposure it is still very risky to put all your eggs in 1 basket, or market in this case.

On the day Russia invaded Ukraine, Russia’s stock market plunged 33% in a single day but it’s intraday low was a crash of 45%.  If we had been doing our leveraged strategy with Russian indexes we’d have been wiped out. Who’s to say that a freak event couldn’t do the same with the US market? Yes, this seems much less likely, but we have to acknowledge that it’s always a possibility, no matter how slim.

The second problem that concerns us is bond prices and the low yields. Bond yields have already been rising recently due to high inflation and anticipated interest rate hikes, which causes bond prices to fall. It seems unlikely that bonds will provide the same level of insurance to the stock market as what we’ve experienced in the last 40 years or so. Over this time, the US Fed interest rate has come down to record lows. The only direction it’s going now is up and that’s bad news for bonds.

This is hardly news to us, which is why we added gold to the portfolio despite gold not having any significant effect over and above the insurance properties of bonds in our backtesting. So far, our gut feeling to include gold has paid off but recently we came across this chart that could change everything.

Russian gold reserves

The chart shows the gold reserves of Russia since the year 2000. Up until the financial crisis around 2008 their gold reserves were flat. Since then, they have more than quadrupled. With a bit of hindsight our guess is that they were preparing for war.

You could argue that the Ukraine invasion has been 14 years in the making. Wars are expensive and what better way to fund a war than to raise money by selling your gold. Gold is real money and always has a buyer. So what does this mean? Our guess is that there will be tonnes of gold flooding the markets if Russia needs to raise money, which will put huge downward pressure on the price of gold.

To put it into context, there is approximately 34,900 tons of gold reserves in the world and Russia’s central bank has 2,300 tonnes – that’s 6.6%. Conversely, gold has always been a safe haven in times of panic, so the price could in fact rise even if Russia were offloading their reserves.

My third concern is whether I could stomach big losses to my leveraged portfolio. So far, having only put in just over £12,000 I wouldn’t be devastated if I lost the lot. In the grand scheme of things, it’s not that much money and I’m still young, so could rebuild. However, as I continue to build my leveraged portfolio there will probably become a point where the risk of loss is too much. I don’t know yet how much money I would need invested to start feeling uneasy.

Why We’re Bullish On This Strategy

We’re not going to repeat what we’ve said in other videos because you can go back and watch them but let’s look at some other key points:

Firstly, the risk of losing your original capital is much higher at the start. But in theory when you’ve been running the strategy for a long time, say 15 years, losses will likely just eat into your gains. And even with what would seem like a catastrophic decline you would still likely have way more money than what you could get from an unleveraged investment.

Portfolio values and returns after various theoretical declines

Say you had £10,000 and earned 30% leveraged gains for 15 years, but then suffered a 90% decline. Your original £10,000 would still be worth an awesome £51,000, which is still an 11.5% compound annual growth rate despite the massive loss at the end. The table you see here is the annual growth rates earned after various declines. There is a lot of assumptions in this, but it goes to show that time with this leveraged strategy reduces your risk to your original capital significantly even if it doesn’t play out exactly like this.

We’re also bullish because new contributions reduce your overall amount of leverage. Say you had invested with 3x leverage, and the market fell, and your portfolio was now 6x leveraged. When you add more money at 3x leverage you dilute your existing portfolio, bringing it slightly closer to your target leverage. This is a key reason why we continue to add to our leveraged portfolios even when the market is down.

And what’s more, this strategy is very different to dumping money into high-risk stocks or crypto because we’re investing in whole indexes of stocks, bonds, and gold, in a precise mix that has been designed to weather any market crash, and to massively increase in value over time. Those other strategies rely on hope. Ours relies on data.

What do you make of our leveraged strategy? Are we bonkers or geniuses? Join the conversation in the comments below.

Written by Andy


Featured image credit: Andrey_Popov/Shutterstock.com

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10X Your Money: 10X Your Life!

I want to kick off this post by telling you a short story. I must have been around 11 years old, and my family and I were on holiday in North Cyprus, which is a relatively poor country. We had taken a hire car and on a remote mountain road in the middle of nowhere we had found a restaurant to grab a bite to eat.

We placed our order with the waiter and then he scurried off towards the kitchen. A moment later one of the members of staff was seen jumping into his car and speeding off down the dusty road.

A while later the guy returned with a big shopping bag in hand. It turns out whatever we had ordered they didn’t have in stock, but rather than just refusing the order – and sneering, “sorry we’re out of chips” – as they would in most UK restaurants, they bent over backwards to satisfy what was in their mind a wealthy customer. This is a perfect example of how those with money get treated better in life.

In this post we’re talking about some of the many ways money enhances your quality of life. Now, let’s check it out…

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Money Makes You Live Longer

Is money the elixir of life that we’ve all been looking for? The richer you are, the longer you live – that is a fact. Data from the ONS shows that life expectancy at birth of males living in England’s most deprived areas was 74.1 years, whereas it was 83.5 years in the least deprived, a gap of 9.4 years. A different study found that the life expectancy gap between England’s richest and poorest neighbourhoods has widened since 2001.

Economists have warned of wealth inequality rising in Great Britain, so presumably the life expectancy between rich and poor will also continue to widen.

The wealthiest 10% of households owned 43% of all the wealth in Britain between April 2018 to March 2020, according to data from the ONS. In contrast, the entire bottom half of the population held only 9%.

But rich people don’t just live longer. They also get more healthy years. Wealthy men and women generally have eight to nine more years of “disability-free” life after age 50 than poor people do, according to a study of English and American adults.

The study analysed how well various factors including education, social class and wealth predicted how long a person would live before they could no longer carry out activities such as getting out of bed or cooking for themselves — the study’s definition of being “disability-free” and “healthy.”

Everything paled in comparison with wealth! Though education level and social class had some effect, neither was found to be nearly as significant as wealth.

You Are Not Ugly, You Are Just Poor

Before & After memes!

Money seems to possess a magical power that can make you better looking. Take these memes for example. Billionaire Jeff Bezos was a dorky nerd in the ‘90s. Fast-forward to 2017 and he looks more like the Terminator. A similar transformation appears to have happened to Elon Musk. Not only did he found PayPal, Space X, Tesla, and become a billionaire, he clearly has developed a hair growth formula.

Now, some of these extreme transformations might exaggerate the message. No doubt that these were probably the worst and best photos that could be found but even in more normal walks of life, it’s obvious that money can make you better looking and healthier.

In a Guardian article, the author wrote, “It’s simply harder to eat well when you are poor… healthy food is often prohibitively expensive, less healthy options are relatively as cheap as, well, chips. When parents have to find the cheapest food available for their family, it’s nearly always going to be less likely to be fresh; and more likely to be highly calorific (therefore “filling”).”

The next health advantage money buys is access to luxury gyms, health clubs, and personal trainers. None of this is required at all to maintain basic fitness but if you’ve got the money, it significantly helps. The extreme levels of fitness and good looks that most people can only dream of are not obtained by just a quick run round the block.

A personal trainer will push your limits, and crucially keep you motivated. According to PureGym, an average session of 45 minutes will cost up to £65. And a membership to a David Lloyd Gym will set you back over £1,000 a year.

You don’t even need to put in any hard work as long as you have the money. A good dentist can change your smile, swapping crooked gnashers for a set of poker straight, blindingly bright teeth. They don’t call it a ‘Hollywood smile’ for nothing

I had laser eye surgery several years ago, costing nearly £2,000, and the improvement to my life was amazing. I was tired of constantly having to put contacts in when I was doing sport or going out. I was about to travel to Southeast Asia and the thought of swimming, canoeing, and white water rafting while battling with contact lenses was the final straw. Without money, none of this is possible.

Wealth Gives You Options Now & In The Future

For us, a life feeling trapped is not an enjoyable one. Money gives you options. You can quit jobs, chase passions, enjoy hobbies, start businesses, retire early, travel, work part time, and so much more.

Without wealth, you need to constantly work to survive. Passive income is that annoying buzz word that is overused but the reality is that if you build assets that pay you without the need to put in your own time and sweat, you can free up your schedule. The passive income I have from rental properties means I’m never overly stressed about needing to work long hours.

Most of us spend about third of our lives at work, so working a job you hate is no way to live. Those people who have no money have no options.

If they have a nasty boss or the work is torture, there’s very little they can do. And as for starting a business, how is someone on the bread line ever meant to do this? It’s practically impossible. A business needs months, if not years to start turning a profit. A pile of cash gives you and your business the breathing space that is needed.

Even a little money can give you your independence. According to a study commissioned by the Debt Advisory Centre, nearly one in five people have remained in a romantic relationship because financial worries have prevented them from leaving.

Of those who have stayed in relationships for longer than they wanted to, one in five did so for up to three months but the majority stayed together for far longer. A shocking 24% of these respondents remained with their partners for more than three years after things went stale.

Moreover, a lack of good finances could make you dependent on the state, which is no way we would ever want to live. State benefits are always going to be measly and very few people would voluntarily choose to live on state handouts alone.

You might hope that the state pension would be more generous considering you have paid into the system all your life, but you’d be wrong. If you have a full National Insurance record you will only get a little over £9,000 a year. This is not enough to live on, so make sure you are building your own freedom fund, as we call it.

Live Worry Free

41% of Brits don’t have enough savings to live for a month without income, a third of Brits have less than £600 in savings, and 9% of Brits have no savings at all.

Worrying about money can make your mental health worse. Financial difficulties are a common cause of stress and anxiety, and stigma around debt can mean that people struggle to ask for help and may become isolated.

According to a recent American survey, 77% of people report feeling anxious about their financial situation. 58% feel that their finances control their lives, and 52% have difficulty controlling their money-related worries. They are most worried about their financial future with 68% worrying about not having enough money to retire.

Get Away With Murder

There seems to be a different set of rules for those with money. If what you hear is true, Wayne Rooney has had a string of affairs with prostitutes over the years, but Coleen Rooney has forgiven him saying she chose not to leave him partly for the sake of their boys. We’ll let you speculate what else convinced her not to give him the boot. Pun intended.

Back in 1995, OJ Simpson, American football star and actor, was acquitted of all criminal charges relating to the murders of his ex-wife, Nicole Brown Simpson, and her friend, Ron Goldman – even though he almost certainly did it.

OJ had so much money that he was able to put together an impeccable group of defence lawyers, who were nicknamed the Dream Team. It has been estimated that the defence cost Simpson somewhere between $3-6,000,000, the most costly murder defence expense to date.

It appears you can get away with murder: “as along as long as you’ve got the cash, to pay for Cochran”, as Good Charlotte once said. And just to caveat all this, we obviously do not condone any crime.

Invest In Your Future

We, as well as you guys reading, are probably a little different to the average person. Most people have a high time preference meaning they favour having stuff sooner rather than later. They want immediate gratification, whereas we as investors have a low time preference and often choose to delay gratification. We’ll sacrifice more now for a better tomorrow.

Investing in stocks, funds, property, and so on are all investments in your future. The more money you earn, the easier it is to invest more. However, there are many stories of ordinary people becoming millionaires by the time they retire simply by living below their means, investing in the stock market – often through a pension and an ISA – and being super patient.

Another way to invest in your future is by becoming educated. If you have some money behind you, you can invest in your education and learn new skills, which leads to better and more highly paid work. Unfortunately, so many people are firefighting just to pay their monthly bills that they have no money to reinvest in their education. How many books do you think the average person reads? We’re guessing not many, whereas 85% of wealthy people (including self-made millionaires) read two or more books per month. Bill Gates reads roughly 50 books per year.

Buy The Best Things

This point probably doesn’t need saying but money can buy you much better stuff. In some cases, it’s just perceived benefit, but many products and services are genuinely better. And in the case of safety equipment, it might save your life.

By way of example, consider braking distances of budget versus premium tyres. A recent test undertaken by Continental tyres showed that wet braking distance was over five metres longer when the vehicle was using budget tyres compared to premium tyres. Money spent on your car may save your life.

What You Need To Do

It’s evident that money is super important, so we all need to make sure we have plenty of it in our lives. This website is dedicated to helping you grow and invest your money, so make sure you’re subscribed. If you’re new to thinking about your future, make sure you’re putting as much money as you can into Pensions and Stocks & Shares ISAs, and continuously look for ways to save and earn more.

How would more money improve your life? Join the conversation in the comments below.


Featured image credit: Just dance/Shutterstock.com

Also check out the MoneyUnshackled YouTube channel, with new videos released every Wednesday and Saturday: